The Changing Face of Retirement

1. The Changing Face of Retirement March 2013

2. Objectives • Understand the mindset of recent and soon-to-be retirees. Is it changing? • Compare and contrast attitudes and beliefs of the near retirees and recent retirees • Provide insight to financial services firms regarding strategies they could employ to secure retirement investment assets • Understand retirement saving, planning, and investment behavior Methodology Who: • Recent Retirees (retired within past three years) and Near Retirees (anticipate retiring within next five years) • Retirement savings of at least $100,000 • Age 50 to 70 What: • Online survey among a national sample of 500 Recent Retirees and 500 Near Retirees • Data collected in December 2012

3. Respondent Profiles Near Retired (plan to retire within next five years) Anticipated Retirement Savings Number of Years Until Retirement Average Age Plan to Retire: 64.6 Years Old Recent Retired (retired within the past three years) Retirement Savings Number of Years Since Retirement Average Age Retired: 61.6 Years Old

4. Key Findings The concept of a “retirement age” is passé. • Nearly two-thirds of recent retirees selected advisors before retiring and about one-fifth select an advisor after retiring Retirees who begin saving early hold nearly 60% of retirement assets, but about 40% wait until within ten years of retirement to begin planning Retirement savings of $500k appear to be a tipping point as wealthier retirees view their retirement more positively About 50% of retirees have reinvested their retirement funds within three years of retiring, up from about 40% in 2005 Nearly 40% of people planning to retire within the next five years are in the process of deciding how to reinvest their retirement funds Key investment firm selection criteria include stability, reputation, advisor expertise, and investment performance record When selecting specific investment vehicles, retirees focus most on security of investment principal and investment performance

5. Retirement Classification Working During Retirement • The concept of a “retirement age” is passé • Near retirees are more inclined to work during retirement than recent retirees • Very few plan to move into a second, full-time career “I Believe Retirement Is An Outdated Concept” 43% of those who plan to retire within 3 yrs., 57% who plan to retire in 4-5 yrs.  Significantly Higher 

6. Retiring When Planned? • About one-third of Near Retirees expect to delay their retirement • Reality may impact those plans though -- 31% of those retiring early were laid off, 14% retired because of disability, and 11% were offered early retirement Retirement Timing    Significantly Higher

7. Retirement Attitudes

8. Financial Security During Retirement • Recent retirees are more optimistic regarding their financial security than near retirees, perhaps because they have made decisions and removed the uncertainty 79%   Significantly Higher 

9. Retirement Attitudes in 2012 • Near retirees’ attitudes reflect their uncertainty. Compared to recent retirees, near retirees are more concerned about having sufficient funds through their retirement and feel less prepared for health care expenses. • % Strongly Agree/Agree Concerned about having enough money to last through retirement Believe will have to work during my retirement Confident have saved best as possible for retirement Believe prepared for health care expenses Fear pension income will not pay out as promised1 Concerned home equity will not provide expected retirement income2 Concerned about having to provide for parents or adult children Significantly Higher  Notes: 1of those with pensions; 2of those with home equity

10. Retirement Attitudes in 2012 • Wealthier near/recent retirees view their retirement more positively. Investment savings of $500k appear to be a perceptual tipping point. Significantly Higher  Notes: 1of those with pensions; 2of those with home equity

11. Attitudes Among Recent Retirees: 2005 - 2012 • Recent retirees feel more prepared to handle their health care expenses in 2012, perhaps a reflection of perceptual changes caused by health care reform • % Strongly Agree/Agree • Confident have saved best as possible for retirement Concerned about having enough money to last through retirement Confidence to make investment decisions on own Believe will have to work during my retirement Confused by options available for investing retirement funds Believe prepared for health care expenses Significantly Higher 

12. Saving and Planning

13. Saving and Planning Timing – Near Retired • Near retirees consider saving and planning as separate activities • Early savers accumulate most of the retirement dollars (57%), but many do not begin to plan until 11-25 years (47%) or less than 10 years (38%) before they retire Saving (contributing to a retirement plan) Planning (making specific financing plans) Significantly Higher  Note: Early (26+ yrs.), Mid-Range (11-25 yrs.), Late (<= 10 yrs.)

14. Saving and Planning Timing – Near Retired • Firms should target people as early as possible during the planning phase. The prime targets include: • The 29% who begin saving and planning between 11 and 25 years before retiring that hold 24% of the retirement dollars • The 17% of early savers who begin planning within 10 years of retirement that hold 23% of the retirement dollars Number of Near Retirees Near Retirees - Dollars Note: Early (26+ yrs.), Mid-Range (11-25 yrs.), Late (<= 10 yrs.) Significantly Higher 

15. Saving and Planning Timing – Recent Retirees • Recent retirees consider saving and planning as separate activities • Early savers accumulate nearly 60% of the retirement dollars, but most do not begin to plan until 11-25 years (40%) or less than 10 years (44%) before they retire Saving (contributing to a retirement plan) Planning (making specific financing plans) Significantly Higher  Note: Early (26+ yrs.), Mid-Range (11-25 yrs.), Late (<= 10 yrs.)

16. Saving and Planning Timing – Recent Retired • Firms should target people as early as possible during the planning phase. The prime targets include: • The 18% of early savers who begin planning within 10 years of retirement that hold 26% of the retirement dollars • The 24% of mid-range savers that hold nearly one-fifth of the retirement dollars who begin planning between 11 and 25 years before retiring Number of Recent Retired Recent Retired - Dollars Note: Early (26+ yrs.), Mid-Range (11-25 yrs.), Late (<= 10 yrs.) Significantly Higher 

17. Retirement Strategy - 2012 • Retirement strategy is predicated most on feeling confident one can maintain their desired lifestyle • Near retirees are more inclined to downsize and scale back their lifestyle • % Primary Strategy Confidence retirement will cover expenses of my lifestyle Will need less income by downsizing and reducing lifestyle Ability to live comfortably and leave an inheritance Reaching a particular age Accumulation of a pre-set sum of money Projecting the need for additional income as I age Company policy regarding retirement Significantly Higher 

18. Recently Retired Segment Comparison – 2005 to 2012 • Recent retirees were segmented based on their actions/intentions regarding employer-sponsored retirement plan funds: • “Staying Put”: No immediate plans to move 401(K) savings • “Transitional”: In decision-making mode • “Reinvestor”: Have/will move savings into a tax-free account • “Withdrawer” : Have/will with withdraw funds and not place them into a tax-free account • More retirees made decisions regarding reinvesting their retirement savings within three years of retiring in 2012 than in 2005    Significantly Higher 

19. Segment Composition -- 2012 • Recent retirees were segmented based on their actions/intentions regarding reinvesting employer-sponsored retirement plan funds: • “Staying Put”: No immediate plans to move 401(K) savings • “Transitional”: In decision-making mode • “Reinvestor”: Have/will move savings into a tax-free account • “Withdrawer”: Have/will with withdraw funds and not place them into a tax-free account • Approximately half of recent retirees have reinvested their savings, while over nearly 40% of near retirees are deciding how to invest their funds   Significantly Higher 

20. Sources and Uses of Income

21. Retirement Income Sources (Percent Of Dollars) Sources of Retirement Income - 2012 • Near retirees expect to rely most on retirement investments while recent retirees rely most on pensions • Although still a small percentage, near retirees anticipate relying more on employment income than do recent retirees    Significantly Higher 

22. Composition of Retirement Income Wallet – Near Retirees • Wealthier near retirees present the greatest opportunity for investment firms because they rely more on retirement investments • Firms should consider providing education to near retirees who rely on pension income and don’t use an advisor regarding options for investing pension funds Significantly Higher 

23. Composition of Retirement Income Wallet - Recent Retirees • Wealthier recent retirees present the greatest opportunity for investment firms because they rely more on retirement investments and have other savings • Firms should consider providing education to recent retirees who rely on pension income and don’t use an advisor regarding options for investing pension funds Significantly Higher 

24. Uses of Retirement Income (Percent Of Dollars) Retirement Income Allocation - 2012 • Daily living expenses consume most retirement income, followed by health care expenses and major purchases • Near retirees expect to spend a greater portion of their income on health care than recent retirees More prevalent among those with $500+ in investment savings   Significantly Higher 

25. Investment Firm and Advisor

26. Working With An Advisor Financial Advisor Usage - 2012 • More recent retirees than near retirees work with a financial advisor • Nearly 90% of recent retirees with an advisor established that relationship before retiring   Significantly Higher 

27. Recent Retirees Working With An Advisor Financial Advisor Usage: 2005 vs. 2012 • Nearly two-thirds of recent retirees work with an advisor. This usage rate has remained unchanged from 2005 to 2012.  Significantly Higher

28. Timing of Working With An Advisor – Recent Retirees Financial Advisor Usage Among Recent Retirees: 2005 vs. 2012 • More recent retirees selected advisors before retiring in 2012 (61%) than in 2005 (52%). Only about one-fifth select an advisor after retiring. 2012 2005 For those without an advisor before retiring … For those without an advisor before retiring …  Significantly Higher – 2005 vs. 2012

29. Working With The Same Advisor – Recent Retirees Financial Advisor Usage Among Recent Retirees: 2005 vs. 2012 • Of those selecting an advisor before retiring, 84% remained with that advisor after retiring in 2012, up from 76% in 2005 • Firms should seek to establish advisory relationships before an individual retires 2012 2005 Same Advisor Same Advisor  For those with an advisor before retiring … For those with an advisor before retiring … Different Advisor Different Advisor  Significantly Higher – 2005 vs. 2012

30. Investment Firm Selection Criteria • Both near and recent retirees focus on a firm’s stability and reputation, the advisor’s expertise, and the investment performance record as they select an investment firm Reputation of investments firm (up from Tier 2) Financial strength of investment firm Understand my financial situation Investment performance track record (up from Tier 2) Financial advisor’s expertise Flexibility to allocate funds among investments Tier 1 (80%+ Influential) Quality of investment research and information Range of products Fees Relationship with financial advisor (up from Tier 3) Tier 2 (70-80% Influential) Recommendations Previous experience with investment firm Tax planning capabilities Ability to invest without need for a financial advisor Estate planning capabilities Tier 3 (40-70% Influential) Quality of investment firm’s website Branch presence Health insurance planning capabilities Life insurance planning capabilities Tier 4 (<40% Influential) Note: (comparison to Tier in 2005)

31. Type Of Investment Firm Investment Firm Usage: 2005 vs. 2012 • Most recent retirees used a full service investment firm in 2012, followed by an independent advisor/firm. This usage pattern has remained unchanged from 2005. Note: Discount Brokerage and Mutual Fund Company Not Available For 2005 Significantly Higher 

32. Type Of Investment Firm Investment Firm Usage - 2012 • Most near and recent retirees use a full service investment firm, followed by an independent advisor/firm Significantly Higher 

33. Retirement Investment Vehicle Selection Influencers Among Recent Retirees – 2005 vs. 2012 • Principal security and range of investment options have become more influential for recent retirees when selecting specific investments • % Influential Flexibility to reallocate funds among investments Fees or costs associated with investments Expected investment performance Security of investment principal Amount of income generated monthly Range of investment options Significantly Higher 

34. Retirement Investment Vehicle Selection Influencers - 2012 • Principal security is the most influential investment selection criteria among both recent and near retirees • Recent retirees focus more on investment performance and investment options, while near retirees care more about amount of monthly income • % Influential Flexibility to reallocate funds among investments Fees or costs associated with investments Expected investment performance Security of investment principal Amount of income generated monthly Range of investment options Significantly Higher 

35. Satisfaction With Retirement Investment Firm Investment Firm Satisfaction - 2012 • Near and recent retirees are generally satisfied with their investment firms  Significantly Higher

36. Key Findings and Recommendations The concept of a “retirement age” is passé. Firms need to view a retirees situation broadly and develop a personalized plan. • Nearly two-thirds of recent retirees selected advisors before retiring and about one-fifth select an advisor after retiring. Firms should focus on securing advisory relationships as early as possible. Retirees who begin saving early hold nearly 60% of retirement assets, but about 40% wait until within ten years of retirement to begin planning. Firms should realize considerable potential exists within those nearing retirement. Retirement savings of $500k appear to be a tipping point as wealthier retirees view their retirement more positively. Firms should develop different value propositions for investors above and below the $500k level.

37. Key Findings and Recommendations About 50% of retirees have reinvested their retirement funds within three years of retiring, up from about 40% in 2005. Firms should focus on securing advisory relationships as early as possible. Nearly 40% of people planning to retire within the next five years are in the process of deciding how to reinvest their retirement funds. Firms should consider this group a primary target because the money is in transition. Key investment firm selection criteria include stability, reputation, advisor expertise, and investment performance record. Firms should emphasize these criteria as they market retirement services. When selecting specific investment vehicles, retirees focus most on security of investment principal and investment performance. When developing retirement plans advisors should ensure they address these criteria.

38. Thank You!